J C B A R T H - C O U L L A R É

C O R N E L I A S C H M I T T

C O N S T A N T I N S T O R Z

VIS ARBITRATION MOOT TEAM TÜBINGEN 2006

________________

THIRD ANNUAL WILLEM C. VIS EAST INTERNATIONAL COMMERCIAL ARBITRATION MOOT

HONG KONG, 2006 ________________

MEMORANDUM FOR RESPONDENT

RESPONDENT

McHinery Equipment Suppliers Pty

Mr. Norman McHinery The Tramshed Breakers Lane

1423 Westeria City MEDITERRANEO

UNIVERSITY OF TÜBINGEN

CLAIMANT Oceania Printers S.A. Specialist Printers Mr. Roland Butter Tea Trader House Old Times Square 00178 Magreton OCEANIA UNIVERSITY OF HOUSTON

I

INDEX OF AUTHORITIES Bianca, Cesare Massimo / Bonell, Michael Joachim (eds.)

Commentary on the International Sales Law: The 1980 Vienna Sales Convention Milan: Giuffré 1987 [Cited as: Author in Bianca / Bonell]

Bucher, Andreas / Bonomi, Andrea

Droit international privé § 27 L'arbitrage international pp. 320 – 345, Geneva: Helbing & Lichtenhahn 2001 [Cited as: Bucher / Bonomi]

Dharmananda, Kanaga The Unconscious Choice – Reflections on Determining the Lex Arbitri in Jounal of International Arbitration 19 (2): 151-161, 2002

[Cited as: Dharmananda “unseating the seat theory”]

Erosi, Gyula

International Sales: The United Nations Conventions on Contracts for the International Sale of Goods, Matthew Bender (1984), Ch. 2 http://www.cisg.law.pace.edu/cisg/biblio/eorsi1.html [Cited as: Erosi in “International Sales”]

Farnsworth, E. Allan “Formation of Contract” in “International Sales – The United Nations Convention on Contracts for the International Sale of Goods; New York: 1984 [Cited as: Farnsworth in “Formation of Contract”]

Farnsworth, E. Allan in “Bianca-Bonell Commentary on the International Sales Law”; Giuffrè: Milan (1987) 163-174 http://www.cisg.law.pace.edu/cisg/biblio/farnsworth-bb18.html [Cited as: Farnsworth in “Bianca-Bonell“]

II

Karollus, Martin UN-Kaufrecht: eine systematische Darstellung für Studium und Praxis, Springer: Wien 1991 [Cited as: Karollus in “UN-Kaufrecht“]

Lagarde, Paul / Giuliano, Mario

Report on the Convention on the law applicable to contractual obligations http://www.rome-convention.org/instruments/i_rep_lagarde_en.htm [Cited as: Giuliano-Lagarde explanatory report]

Mehren, Arthur Taylor von Explanatory report of the 1985 Hague Convention on the Law Applicable to Contracts for the International Sale of Goods

http://www.hcch.net/upload/expl31.pdf

[Cited as: von Mehren “Rapport”]

Münchener Kommentar zum Handelsgesetzbuch

Münchener Kommentar zum Handesgesetzbuch [Cited as: Author in “MünchKommHGB“]

Pilz, Burghard Internationales Kaufrecht – Das UN-Kaufrecht (Wiener Übereinkommen von 1980) in praxisorientierter Darstellung; München: Beck 1993 [Cited as: Piltz in “Internationales Kaufrecht“]

Redfern, Alan / Hunter, Martin

Law and practice of international commercial arbitration, 4th ed. London: Sweet & Maxwell 2004 [Cited as: Redfern / Hunter]

Reithman, Christoph / Martiny, Dieter Das internationale Privatrecht der Schuldverträge, 6th ed.

Köln: Otto Schmidt Verlag 2004

[Cited as: Reithman / Martiny]

III

Rubino-Sammartano, Mauro International Arbitration Law and Practice, 2nd ed., The Hague: Kluwer Law International, 2001 [Cited as: Rubino-Sammartano]

Sanders, Pieter Commentary on UNCITRAL Arbitration Rules in Yearbook Commercial Arbitration, vol. II-1977 [Cited as: Commentary on UNCITRAL Arbitration Rules in Yearbook Commercial Arbitration, vol. II-1977]

Schlechtriem, Peter / Schwenzer, Ingeborg

Kommentar zum einheitlichen UN-Kaufrecht (CISG); Munich: Beck 2004 [Cited as: Schlechtriem / Schwenzer]

Schlechtriem, Peter Internationales UN-Kaufrecht; 3rd ed.; Tübingen: Mohr Siebeck 2005 [Cited as: Schlechtriem in “Internationales UN-Kaufrecht“]

Schlechtriem, Peter Uniform Sales Law: the UN Convention on Contracts fort the International Sale of Goods http://cisg.law.pace.edu/cisg/biblio/schlechtriem.html [Cited as: Schlechtriem in “Uniform Sales Law”]

Secretariat Commentary of the CISG

Secretariat Commentary on Article X of the 1978 Draft. [Cited as: Sec. Comm. Art. X]

Soergel Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetzen und Nebengesetzen, Band 13 – Schuldrechtliche Nebengesetze 2: Übereinkommend der Vereinten Nationen über Verträge über den internationalen Warenkauf (CISG); Stuttgart: Kohlhammer 2000 [Cited as: Author in “Soergel“]

IV

Staudinger, J. von Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetzen und Nebengesetzen – Wiener UN-Kaufrecht (CISG); Berlin: Sellier – de Gruyter, 2005 [Cited as: Author in “Staudinger”]

Stoll, Hans Inhalt und Grenzen der Schadensersatzpflicht sowie Befreiung von der Haftung im UN-Kaufrecht im Vergleich zu EKG und BGB, in Schlechtriem, „Einheitliches Kaufrecht und nationales Obliegenheitsrecht“ Baden-Baden: Nomos 1987, pp. 257-281 [Cited as: Stoll „ Schadensersatzpflicht“]

Vischer, Frank Private International Law Chapter 4 Connecting Factors International Encyclopedia of Comperative Law; Tübingen: J.C.B. Mohr Siebeck 1999 [Cited as: Vischer ]

V

INDEX OF CASE LAW

(in chronological order)

France Cour d’appel de Colmar, 20 October 1998 Société Fort James France v. Soc. Fabio Perini et. Soc. Perini International (Referred to in para.: 25)

Germany Amtsgericht München, 23 June 1995, CISG-online 368 = UNILEX (Referred to in para.: 129)

Bundesgerichtshof VII ZR 08/97, 25 Febuary 1999 in NJW 1999, p. 2442 (Referred to in para.: 27)

Oberlandesgericht München, 7 U 1720/94, 08 Febuary 1995 R. Motor s.n.c. v. M. Auto Vertriebs GmbH in CLOUT Abstract n° 133 (Referred to in para: 134)

Great Britain Appellate Court Victoria Laundry (Windsor) Ltd. V. Newman Industries Ltd. (1949) 1 All E.R. 997 (Referred to in paras.: 112, 113, 116)

House of Lords Hadley v Baxendale (1854) 9 Ex 341, 156 ER 145 (Referred to in para.: 108, 109, 110, 112, 116)

VI

Italy Corte d’Appello di Milano 18 July 1997 in Rivista die diritto internazionale privato e processuale, 1997, p. 980 (Referred to in para.: 27)

United States of America U.S. District Court of Illinois 99 C 5153, 7 December 1999 Magellan International Corporation v. Salzgitter Handel GMBH (Referred to in para.: 54)

Spain Tribunal Supremo (2977/1996 ), 1998 Sociedad Cooperativa Epis-Centre vs. La Palentina, S.A, 1998; (Referred to in para.: 54)

Audiencia Provincial de Barcelona 4 February 1997 Manipulados del Papel y Carton SA v. Sugem Europa SL In CLOUT n° 396 (Referred to in para.: 73)

Filanto SPA v Chileswich International Corp 789 F Supp 1229, 1237 [SDNY 1992] (Referred to in para.: 54, 61)

VII

INDEX OF INTERNATIONAL INSTRUMENTS EC CONVENTION ON THE LAW APPLICABLE TO CONTRACTUAL OBLIGATIONS of 19 June 1980 CIDRA CHICAGO INTERNATIONAL DISPUTE RESOLUTION ASSOCIATION of 1 July 2005 CISG UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS of 11 April 1980 HAGUE CONVENTION ON THE LAW APPLICABLE TO CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS of 22 December 1986 NEW YORK CONVENTION ON THE LIMITATION PERIOD IN THE INTERNATIONAL SALE OF GOODS of 14 June 1974 NEW YORK CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS of 10 June 1958 UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION of 21 June 1985

i

TABLE OF CONTENTS

INDEX OF AUTHORITIES ....................................................................................................I

INDEX OF CASE LAW ......................................................................................................... V

INDEX OF INTERNATIONAL INSTRUMENTS........................................................... VII

I. INTRODUCTION ................................................................................................................ 1

1. Parties to the present dispute .............................................................................................. 1

2. Dispute settlement by way of arbitration........................................................................... 1

3. Statement of purpose ........................................................................................................... 1

II. REJECTION OF CLAIM FOR DAMAGES OF $ 3 200 000......................................... 3

1. CISG as applicable law to the contract .............................................................................. 3

2. Prescription of the claim...................................................................................................... 3 2.1. Claimant’s suit is barred under the laws of Mediterraneo and the General Principles of Private

International Law............................................................................................................................................... 3

2.2. International trade usages support the application of Mediterraneo’s conflict of laws rules..................... 4

2.3 The rule of seller’s law is justifiable and requires no exception .................................................................. 6

2.4. The claim is time-barred because Mediterraneo’s period of limitation applies.......................................... 8

2.5. Respondent’s defence does not unduly harm Claimant ............................................................................... 8

2.6. Mediterraneo law is not inflexible and not contrary to overwhelming persuasive authority ...................... 9

2.7. Conclusion of the section .......................................................................................................................... 11

3. Rejection of liability for alleged breach of contract........................................................ 12

3.1. Rejection of alleged breach of contract ........................................................................ 12 3.1.1. Claimant’s invitatio ad offerendum to purchase a Flexoprint machine ............................................. 12 3.1.2. Respondent’s offer of the second-hand Flexoprint machine ............................................................. 13 3.1.3. Claimant’s inspection of the Flexoprint machine in Athens.............................................................. 14 3.1.4. Respondent’s altered offer dated 27 May 2002 ................................................................................. 14

3.2. Regarding an alleged “implicit contractual term”....................................................... 15

3.3. Regarding the criterion of “fitness for a particular purpose”...................................... 16

3.4. Conclusion of the section .............................................................................................. 18

ii

4. Rejection of alleged damages ............................................................................................ 19

4.1. In respect of their existence, based on objective criteria.............................................. 19 4.1.1. Regarding Claimant’s allegation of their existence according to the contract................................... 19 4.1.2 Regarding the comparison of Claimant’s overall economic situation before and after

the conclusion of the Flexometix contract................................................................................................... 20 4.1.3 Claim for lost profits vs. breach of the bona fides obligation of Art. 7-1 CISG................................. 21

4.2. In respect of Claimant’s way of calculating such amount of damages......................... 22 4.2.1. Regarding the probability of Claimant’s assumptions being true in general and regarding the

possibility of a second-term renewal of Claimant’s contract....................................................................... 23 4.3. In respect of their foreseeability according to Art. 74 CISG ........................................ 24

4.3.1. The case of Hadley v. Baxendale and Art. 74 CISG.......................................................................... 24 4.3.2. The case of Victoria Laundry Ltd. v. Newman Industries Ltd. and Art. 74 CISG ............................. 25 4.3.3. Subjective test of Art. 8-1 CISG and objective test of Arts. 8-2, 8-3 CISG ...................................... 26

4.4. In respect of the striking disproportion between the excessive amount of damages

claimed by Claimant and the comparatively small value of the contract to Respondent .... 26 4.4.1. Limitation of Respondent’s liability according to Art. 9-2 CISG: standard usages in the trade of

second hand industrial equipment ............................................................................................................... 27 4.4.2. Lack of foreseeability of damages in excess of sane proportion ....................................................... 27

4.5. Regarding Claimant’s obligation to mitigate damages, Art. 77 CISG ......................... 28 4.5.1. In respect of Claimant’s obligation to mitigate damages in accordance with

sentence 1 of Art. 77 CISG.......................................................................................................................... 28 4.5.2. In respect of Respondent’s prerogative to reduce damage claim in accordance with

sentence 2 of Art. 77 CISG.......................................................................................................................... 30 4.6. Conclusion of the section .............................................................................................. 31

5. Exemption of liability......................................................................................................... 32

5.1. According to Art. 80 CISG ............................................................................................ 32 5.1.1. The concretization of the general bona fides principle of Art. 7-1 CISG .......................................... 32 5.1.2. Applicability requirements of Art. 80 CISG...................................................................................... 32 5.1.3. In respect of the splitting of damages according to Art. 80 CISG ..................................................... 33

5.2. Conclusion of the section .............................................................................................. 34

IV. FACTUAL AND LEGAL CONCLUSIONS AND REQUEST FOR RELIEF.......... 34

1. Requests to find .................................................................................................................. 34 2. Requests to order................................................................................................................ 35 3. No concessions clause ......................................................................................................... 36 4. Reservation of rights .......................................................................................................... 36 5. Conclusion........................................................................................................................... 36

1

I. Introduction

1. Parties to the present dispute

1. The Claimant, Oceania Printers S.A., is a corporation organised under the laws of

Oceania. The principal office is located at Tea Trader House, Old Times Square, Magreton,

00178 Oceania, telephone: (0) 555-7356, telefax: (0) 555-7359. Oceania Printers S.A. is a

printing firm.

2. The Respondent, McHinery Equipment Suppliers Pty, is a corporation organised

under the laws of Mediterraneo. The principal office is located at Westeria City,

1423 Mediterraneo, telephone: (0) 487-1616, telefax: (0) 487-1620. McHinery Equipment

Suppliers Pty is a seller of new and used industrial equipment.

2. Dispute settlement by way of arbitration

3. In reference to Claimant’s initial statement of claim dated 27 June 2005 and

Respondent’s answer to aforementioned statement dated 3 August 2005, and in reference to

Claimant’s detailed statement of claim dated 8 December 2005, Respondent does not object to

the settlement of the present dispute by way of arbitration according to the CHICAGO

INTERNATIONAL DISPUTE RESOLUTION ASSOCIATION (CIDRA) Rules effective as of

1 July 2005 to be conducted in Vindobona / Danubia by a panel of three arbitrators.

Furthermore, it is to be pointed to the fact that there is no doubt as to the arbitrability as such

of the subject-matter in the present dispute, as a different regarding the execution of a

contractual obligation is, according to Arts. II-1 and V-2-a of the NEW YORK CONVENTION ON

THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS of 1958 and

Arts. 34-2-b-i and 36-1-b-i of the UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL

ARBITRATION of 21 June 1985, generally “capable of settlement by arbitration”. Thus, there is

no evidence of any obstacles to the conduct of arbitration to in the present case.

3. Statement of purpose

4. Respondent will establish that –

2

under the applicable law, Claimant is precluded with its claim which is

therefore inactionable;

in case the Arbitral Tribunal finds that the claim is not prescribed, Respondent

is not in breach of contract by not having delivered a Flexoprint machine

capable of printing on 8 micrometer foil;

in case the Arbitral Tribunal finds that Respondent was under an obligation to

deliver a Flexoprint machine capable of printing on 8 micrometer foil,

Claimant has not suffered any recoverable damages;

in case the Arbitral Tribunal finds that damages had arisen, Respondent will

establish that:

- they would not amount to $ 3 200 000 as suggested by Claimant but

only to a lower amount;

- the maximum amount of liability is limited to the value of the

contract as is a usage of which the parties knew or ought to have

known and which is widely known and regularly observed in the

industry;

- Claimant did not mitigate its own loss and can therefore not rely on

that loss including lost profit to be recoverable;

- it is entitled to reduce the amount of damages claimed to the fair and

reasonable amount of $ 100 000;

- Claimant has violated its general bona fides obligations established

by Art. 7-1 CISG towards Respondent and is therefore barred from

recovery of damages altogether;

- Respondent is exempt of liability for Claimant’s violations of good

faith owed to Respondent (Art. 80 exemption in the CISG)

Claimant’s present claim is to be dismissed in its entirety for the reasons set

out above.

3

II. Rejection of Claim for damages of $ 3 200 000

5. In paragraph 1 of its detailed statement of claim dated (undated), Claimant strives to

hold Respondent liable to pay the amount of $ 3 200 000 in damages. For obvious reasons,

Respondent hereby contests this claim in its entirety and rejects Claimant’s allegations.

1. CISG as applicable law to the contract

6. First, it is to be noted that Claimant has, at no point in its Memorandum, undertaken

to submit any considerations as to the law applicable to the merits of the present dispute,

merely assuming that the CISG would be “generally applicable”.

7. In the negotiations leading to the conclusion of their contract, the parties have not

excluded the application of the CISG according to Art. 6 CISG, so that according to

Art. 1-1-a CISG, and in the absence of a explicit choice by the parties, the Vienna Convention

would have been ipso iure applicable [Magnus in “Staudinger“ Art. 6 CISG at 8], since both

Oceania and Mediterraneo – where the Claimant and the Respondent, respectively, have their

places of business – are parties to the Convention.

8. At a later point in time, the parties have themselves expressly designated the CISG to

govern their contractual relationship by signing the contract dated 30 May 2002

(cf. Claimant’s Exhibit it n°7). Therefore, the CISG has effectively been made applicable to

the present dispute to the extent of its applicability according to Art. 4 CISG.

2. Prescription of the claim

2.1. Claimant’s suit is barred under the laws of Mediterraneo and the

General Principles of Private International Law

9. Article 87 of the Law of Obligation of Mediterraneo provides for a two-year

limitation period thus rendering Claimant’s claim of 5 July 2005 time barred. The Arbitral

Tribunal should consider the Rome Convention (see below), which has persuasive authority,

when exercising its broad discretion in the determination of the applicable law to the matter of

the prescription period in accordance with Art. 32-1 of the CHICAGO INTERNATIONAL DISPUTE

RESOLUTION ASSOCIATION (CIDRA) Rules.

4

2.2. International trade usages support the application of Mediterraneo’s

conflict of laws rules

10. As already shown above, the parties have chosen the CISG to govern their

contractual relationship. Since the Vienna Convention does not govern issues of prescription

[Benicke in “MünchKommHGB”, art. 4 CISG at 13; Reithman / Martiny at 316 and 731],

according to Art. 32 of the CIDRA Rules, the applicable law to the issue of prescription will

need to be determined by the conflict of laws rules. In this case the conflict of laws rules in all

three possible forums lead to different limitation periods: two years in Mediterraneo, three

years in Danubia, and four years in Oceania.

11. An arbitration is regulated first by the rules of procedure that have been adopted by

the parties, and, secondly, by the law of the Seat (the so called “curial law”) [Redfern /

Hunter at 2-02 and 2-83].

12. The CIDRA Rules at Art. 32-1, just like Art. 28-2 of the UNCITRAL Model Law

which applies at the Seat in Danubia, grant wide discretion to the Arbitral Tribunal for the

determination of the applicable law. The autonomy of the parties taken into consideration, the

Arbitral Tribunal should find that the parties have made full use of their freedom by choosing

the CISG in their sales contract.

13. When assessing feasible gap-filling provisions (since the issue of the prescription of

the action is not governed by the CISG), the Arbitral Tribunal should find that the agreement

to govern the international sale of this printing machine via a sales convention also needs to

find an extension in the designation of appropriate non-domestic and delocalised law,

concerning the determination of the limitation period.

14. Applying the substantive law of the Seat would clearly not correspond to

Respondent's – and Claimant's – intention, since they did not choose any neutral domestic

law, but internationally applicable commercial sales rules. The express designation of

Danubia as the Seat is not equivalent to designating Danubian law as the substantive law to

the question of the limitation period. To assume this would constitute an unreasonable

extrapolation [Redfern / Hunter at 2-84]. Applying the law of the Seat bears the risk of

neglecting the interests of the parties. The price of dismissing the law of the Seat reduces the

theoretically accepted predictability of the curial law [Dharmananda “unseating the seat

5

theory”] but needs to be taken into account to respect the parties’ choice. Danubia law and its

three-year period of limitation can therefore not be applied and Claimant’s action is time-

barred.

15. The Tribunal should recognize that, according to the general principles of law, and

according to international trade usages, the law of the Respondent applies, which provides for

a two-year period of limitation.

16. The aforementioned general principles of law are also supported by the

EC CONVENTION ON THE LAW APPLICABLE TO CONTRACTUAL OBLIGATIONS OF 1980 (Rome

Convention), “which unifies the conflict rules [..., ... and] gives precedence [...] to the law of

the domicile of the party which has to effect the performance which is characteristic of the

contract” [Rubino-Sammartano, Mauro at p. 431]. The Rome Convention is delocalised and

has served as a genuine model for many legal orders [Redfern / Hunter at 2-34], especially in

Europe. According to Art. 2 of the Rome Convention it “shall be applied whether or not it is

the law of a Contracting State”. Over a period of twenty-five years, the Rome Convention has

gained in persuasive authority through codifications and extensive case law. This justifies its

application in the present case in order to determine the applicable law to the question of the

period of limitation.

17. The applicable law further needs to be determined objectively, “defining the

connecting factor from the inside”, according to the Guiliano-Lagarde explanatory report.

The closest connection is presumed with the forum in which a party who is to effect the

performance that is characteristic to the contract has its habitual residence at the time the

contract was concluded. Since the seller executes the performance and is established in

Mediterraneo, its substantive law applies according to Art. 4-2 of the Rome Convention.

18. The period of limitation in a contract on the sale of goods starts to run when the

event that gave rise to the claim occurs. Had a breach of contract occurred, it would have been

when Claimant fed the printing machine with 8 micrometer foil on 8 July 2002. Under the law

of Obligations of Mediterraneo, the claim accrued on 8 July 2002 (Procedural Order n° 1 at

paragraph 3) and expired on 8 July 2004. Since Claimant’s request for arbitration is dated

27 June 2005, the claim is time barred.

6

19. Claimant proposes that alternatively, the Arbitral Tribunal might base its decision on

the UNIDROIT Principles, under which the claim might still be valid (three years

prescription). However, the UNIDROIT Principles, which strive to distil concrete principles

from the vague and cloudy consideration inherent in the concept of “lex mercatoria” are not

viable in this context, “since they apply only when the parties choose to apply them to their

contract” [Redfern / Hunter at 2-65, 2-66].

20. The working group for the Preparation for the Principles of International Commercial

Contracts has proposed a multi-tier system for the issue of limitation periods that is foreign to

the laws of Danubia, Mediterraneo, and Oceania; consequently, the application of a droit

savant such as the UNIDROIT Principles needs to be justified.

21. While the application of an international Convention has the advantage of being

neutral, it needs to be representative and recognised by the actors in international business

relations before it receives persuasive authority. The UNIDROIT Principles are merely

beginning to be applied in respect of the time of limitation, since this issue was only recently

added as a new chapter of the UNIDROIT Principles 2004 (Chapter 10). Time still has to

show if this soft law instrument, which furthermore is of non-binding nature, will continue to

spread and serve as a model for issues of prescription in the future.

22. Instead of simply supplementing the contractual gap with lex mercantoria

considerations, the Arbitral Tribunal should consider the far more representative Rome

Convention when determining the applicable law to the limitation period, since that

Convention was conceived for and has been moulded to meet the hypothetical standards

required by trans-national sales, such as the one in this case.

2.3 The rule of seller’s law is justifiable and requires no exception

23. Claimant argues that the closest connection test should be applicable in this matter.

However, such a test for an exception is not required when the rule of seller’s law is perfectly

justifiable like in these proceedings. Art. 4 of the Rome Convention and Claimant’s own

domestic law (based on Arts. 8-1 and 8-3 of the 1985 Hague Convention), both cited by

Claimant, give precedence to seller’s law. The application of seller's law is amply justified

since Respondent carried out the characteristic performance of the contract. Respondent’s

7

headquarters and know-how are based in Mediterraneo, as well as the mechanics team that

dismantled, refurbished, tested, and adjusted the printing machine.

24. The facts that the destination of the printing machine and that Claimant’s principal

office are in Oceania are not strong enough to justify the closest connection to the transaction.

“All the buyer did was pay the price” (Respondent’s Answer to the initial Statement of Claim

at paragraph 22, page 24). Furthermore, the method Claimant uses is not viable, since it uses

elements unrelated to the essence of the obligation such as the nationality of the contracting

parties or the place where the contract was concluded (Memorandum for Claimant at

paragraphs 64 and 68).

25. Other justifications provided by Claimant are also weak, such as applying ALI

(American Law Institute) considerations. Regarding the place of performance, the

Restatement Second says: “The state where performance is to occur under a contract has an

obvious interest in the nature of the performance and in the party who is to perform”, i.e. the

Respondent. In regard to the location of the subject matter, Claimant’s assertion that

Mediterraneo law is not applicable because the printing machine did not transit through

Mediterraneo ignores that “the domicile, residence, nationality, place of incorporation, and

place of business” of the party who performs the characteristic performance is in

Mediterraneo. This is corroborated by an arrêt of the French Cour d’appel de Colmar,

released on 20 October 1998, which states that: the law of the country of the central

administration of the party owing this performance governs the issue of the localization of the

place of performance of the obligations at dispute...” [Société Fort James France v. Soc.

Fabio Perini et soc. Perini International].

26. Since the contract was also negotiated in Athens during the inspection of the machine

and the subsequent encounter of Mr. Butter and Mr. Mc Hinery, one could find that Greek

law also needs to be considered. Although applying Greek substantive law would be

unexpected and would go beyond the declared intent of the parties when considering the

parties’ will, the conflict of laws rules of Greece would lead to the application of

Mediterraneo substantive law. Greece signed the EC Rome Convention, which refers to the

residence of the “party who is to effect the performance which is characteristic to the

contract” in Art. 4-2 of the Rome Convention. In determining the closest link to the contract,

8

the Greek conflict of laws rule would also point to the substantive law of Mediterraneo with

its two-year limitation period and Claimant’s action would be blocked.

2.4. The claim is time-barred because Mediterraneo’s period of limitation

applies

27. In a sale of goods, the performance that is characteristic of the contract is that of the

seller [Corte d’Appello di Milano 18 July 1997 in Rivista di diritto internazionale privato e

processuale, 1997, p. 980; Bundesgerichtshof VII ZR 408/97 25 Febuary 1999 in NJW 1999,

p. 2442]. According to the prevailing rule of the seller [cf. Giuliano-Lagarde explanatory

report], the applicable substantive law to the issue of the formation and the extinction of the

period of limitation is that of Respondent. Article 87 of the Law of Obligation of

Mediterraneo (Respondent’s Answer to the initial Statement of Claim p. 26, paragraph 17)

allows for a two-year statute of limitations for international sales contracts. Since the alleged

breach of contract accrued on 8 July 2002 (Procedural Order n° 1 at paragraph 3) and

Claimant’s introduced its request for arbitration only on 27 June 2005, the claim is time

barred.

2.5. Respondent’s defence does not unduly harm Claimant

28. Claimant exaggerates when purporting that it would suffer “extreme harm”

(Memorandum for Claimant at paragraphs 75, 76) if Respondent is not deprived of using its

period of limitation as defence, which results in an act of duplicity – nemo plus iuris in alium

transferre potest quam ipse habet (nobody can transfer more rights, than he detains himself).

On the one hand Claimant suggests to the Arbitral Tribunal to reject Respondent’s domestic

two-year prescription, and on the other hand it argues that Respondent does not loose the right

to defend itself when applying Oceania’s substantive law. Claimant is wrong in stating that

only a period of limitation of four years is compatible with international standards and that

therefore the Arbitral Tribunal should protect it (argumentum e contario Memorandum for

Respondent paragraph 81, last sentence).

29. The Arbitral Tribunal’s role is to weigh the merits of the case and to decide what is

just and fair, and not to protect any party, whether it is Claimant or Respondent.

Mediterraneo’s limitation period provisions do not constitute “an excess of legislative

9

jurisdiction which public international law would condemn” [Vischer at 4-96], as Claimant

tries to suggest.

30. It is Claimant who took the initiative of contacting Respondent via its Internet

platform to inquire about the acquisition of a second hand 7 stand Magiprint Flexometix Mark

8 machine. The mere fact of giving access to a website where refurbished Flexoprint

machines are offered for sale cannot oblige Respondent to comply with the legislative

requirements of every country in which this website can be accessed. On the other hand, a

buyer using remote means, such as the Internet, must be prepared to accept the sales regime of

the country of the seller.

31. An alert professional purchaser such as Oceania Printers S.A. should be prepared to

bear the risks of having seller’s law apply when acquiring a printing machine in a different

jurisdiction. In this case the buyer could reasonably expect that the law of Mediterraneo

would govern the sale, including an appropriate period of limitation of two years that is

neither surprising nor unreasonable.

2.6. Mediterraneo law is not inflexible and not contrary to overwhelming

persuasive authority

32. Claimant states that: “the choice of law rule of Mediterraneo is contrary to

overwhelming persuasive authority granting wide discretion and flexibility to the arbitrator to

determine the rules of law governing a dispute” (Memorandum for Claimant at paragraph

80). This statement mingles things that do not belong together and are not comparable to one

another. A choice of law providing that the law of the seller applies has a different goal than

the arbitration rules of the American Arbitration Association, the Netherlands Arbitration

Institute and so on.

33. The rule of law of Mediterraneo is certainly less flexible than for instance Art. 28-2

of the UNCITRAL Model Law, or Art. 33 of the UNCITRAL Arbitration Rules, and Art. VII

of the Geneva Convention which Claimant cites. Claimant recognises that both set of rules are

different, but to deduce that this Tribunal may contemplate policy and equity considerations,

even though no party has foreseen and even less expressly agreed to a statuation on this basis

goes far beyond what is admissible on an internationally acceptable standard.

10

34. Respondent respectfully asks the Arbitral Tribunal to remind Claimant to stick to the

given circumstance that there is no legal basis for an ex aequo et bono award unless it is the

express wish of the parties, which is not the case in this dispute.

35. Generally jurisdictions mandate the rule of seller because, as scholar von Mehren

states: “in the course of performance, the seller typically must resolve more – and more

difficult – legal issues; the seller’s performance is both economically and legally speaking,

normally more complex than that of the buyer who is usually only obligated to accept

performance and pay the price” [von Mehren “Rapport” at paragraph 15 p. 17].

36. This is also consistent with Art. 8-1 of the 1985 Hague Convention that, as already

pointed out above, determines the law applicable to the issue of prescription after the law of

the State where the seller has his place of business at the time of conclusion of the contract,

just like the choice of laws rule of Mediterraneo. Only by way of exception can the following

“flexible” provisions of Art. 8-2 of the 1985 Hague Convention be applied. This provision has

to meet a high hurdle, since not only at least a substantial portion of the negotiations would

have to take place in the buyer’s country, but also the conclusion by and in the presence of the

parties (or in the presence of appropriately authorized representatives of the parties) are

cumulatively necessary [von Mehren “Rapport” at paragraphs 63-77 pp. 31,33].

37. When monitoring the process of negotiation, it is improbable that the Tribunal will

find that a very substantial part of the negotiations were conducted in Oceania, the buyer's

country, because Respondent was not physically present in Oceania for negotiations and

contract conclusion. None of the two rhedibitory criteria of Art. 8-2-b of the 1985 Hague

Convention are met. This is why there is no need for an exception to the application of seller’s

rule of law, and this is also why Mediterraneo law should not be called inflexible.

38. Furthermore the transport clause CIF does not in itself establish the obligation to

deliver goods at the specified destination [von Mehren “Rapport” at paragraph 76, p. 33], it

merely concerns the passing of the risk of damage of loss of the goods and costs due to the

event occurring after delivery at the shipment harbour. No obligation of performance can be

deduced from the CIF Incoterm.

11

2.7. Conclusion of the section

39. Claimant did not present any evidence of suspension and / or interruption in the

limitation period that may have occured before the claim date. Failing to form an action

within the two-year limitation period of the law of Mediterraneo its allegations cannot be

heard by the Arbitral Tribunal, since they are prescribed.

40. Claimant, on the one hand, seems reluctant to grant the Arbitral Tribunal broad

discretion on the determination of the applicable law to the question of prescription contrary

as what is provided by article 32-1 of the CIDRA Rules in the absence of the parties choice.

On the other hand, Claimant implicitly requests (Claimant Memorandum paragraph 81) to

empower the Arbitral Tribunal to decide ex aequo et bono, for the finding of the rules

applicable to the substance of the dispute that would protect it. In the absence of an express

authorisation, this would violate the parties autonomy (Art. 28-3 of the UNCITRAL Model

Law; cf. also Sanders, Pieter Commentary on UNCITRAL Arbitration Rules in Yearbook

Commercial Arbitration, vol. II-1977 at 18.2).

41. Respondent rejects both views, since they remain blatantly ambiguous and do not

advance this dispute. Furthermore, Claimant's proposition omits that it is international comitas

that in the absence of a choice of law by the parties, the conflict of laws rule of the seller

apply. This presumption is refutable, but the conditions to derogate from this principle are not

met. The margin of profit in the sale of second hand goods is very little, and Claimant's

pretension that the seller deserves no protection does not advance fairness.

42. Respondent respectfully asks the Arbitral Tribunal to determine the applicable

conflict of laws rule according to Arts. 4 and 10 of the Rome Convention, which, enjoying

trans-national acceptance, leads to the application of substantive Mediterraneo law concerning

the limitation period.

43. Claimant's procedure, in light of what seems to be fair and reasonable in all the

circumstances, is not receivable and ought to be rejected by the Arbitral Tribunal, since the

action is time barred.

12

3. Rejection of liability for alleged breach of contract

3.1. Rejection of alleged breach of contract

44. Claimant has not regarded as necessary to inquire into the process of the formation of

the contract in order to assess which characteristic elements of the contract have been agreed

upon in the negotiations leading to the conclusion of the contract and which form part of the

contract itself. On the contrary, Claimant merely asserts that a contract between the parties

was formed and that Respondent be in breach of that contract in accordance with the

provisions of Art. 35 CISG. This, however, is not sufficient to establish an obligation to pay

damages incumbent on Respondent.

45. In what follows, Respondent will therefore retrace the relevant parts in the process

leading to the conclusion of the contract with particular regard to Claimant’s allegations, and,

inter alia, and not withstanding the dispositions of the applicable burden of proof rules,

establish that it is not in breach of its contractual or other obligations under the CISG.

3.1.1. Claimant’s invitatio ad offerendum to purchase a Flexoprint machine

46. From the outset, Claimant intended to purchase a second hand 7 stand Magiprint

Flexometix Mark 8 printing machine from Respondent as advertised on its website to be

shipped, installed, refurbished, and put into operation on its premises to be able to serve a

contract with Oceania Confectionaries.

47. The letter dated 17 April 2002 is to be seen as Claimant’s invitation to Respondent to

make an offer [Magnus in “Staudinger” Art. 14 CISG at 13, 16 ff; Schlechtriem / Schwenzer

art. 14 CISG at 9] concerning a second hand refurbished Flexoprint machine.

48. The purpose of the acquisition was the “printing of coated and uncoated paper for

wrapping, polyester and also metallic foils for use in the confectionary market and similar

fields”. (cf. Claimant’s Exhibit n° 1)

49. Specifically, it is to be noted that Claimant did not, at any time, in his letter dated

17 April 2002, insist or merely specify that the printing machine it had seen on Respondent’s

website be capable of printing on foil as this as 8 micrometers or that this particular product

specification was conditio sine qua non for it in order to engage in the contract.

(cf. Claimant’s Exhibit n° 1)

13

3.1.2. Respondent’s offer of the second-hand Flexoprint machine

50. In response to Claimant’s invitatio ad offerendum Respondent offered the “second

hand 7 stand Magiprint Flexometix Mark 8 machine with a varnishing stand having heated

air drying” for sale (cf. Claimant’s Exhibit n° 2). The terms of that offer included the

refurbishment in Respondent’s works and shipping CIF Port Magreton at the price of

$ 44 500 in total.

51. Whilst it is true that Respondent confirmed that this particular printing machine was

suitable for Claimant’s task (“we have indeed a second hand Flexoprint machine for your

task.”, cf. Claimant’s Exhibit n° 2), it is to be recalled that from what Claimant had told

Respondent, the printing machine was only to be capable of “printing on coated and uncoated

paper for wrapping, polyester and also metallic foils for use in the confectionary market and

similar fields” (cf. Claimant’s Exhibit n° 1), and that at no point in time, there had been

explicit mention of the requirement for the printing machine of being capable of printing on

8 micrometer aluminum foil.

52. Respondent’s letter dated 25 April 2002 could be considered as an offer according to

Art. 14-1 CISG, because it indicates the intention of the offeror to be bound in case of

acceptance and is sufficiently definite: it indicates the goods and expressly determines the

quantity and the price. [Magnus in “Staudinger“ Art. 14 CISG at 12]

53. Following further communication between the parties, Respondent adjusted its

previous offer, so that the printing machine would then be dispatched directly to Claimant’s

premises, where Respondent’s engineers would re-erect and refurbish it for a total price of

$ 42 000. (cf. Claimant’s Exhibit n° 4)

54. Respondent’s letter dated 16 May 2002 thus constitutes a new offer according to

Art. 19-3 CISG in conjunction with Art. 19-1 CISG [Sociedad Cooperativa Epis-Centre vs.

La Palentina, S.A, 1998, Tribunal Supremo (2977/1996), 1998.; cp. UCC 2-204(1); E. Allan

Farnsworth, “Formation of Contract”], since the price, place and time of delivery have been

modified. [cp. Filanto SPA v Chileswich International Corp 789 F Supp 1229, 1237 [SDNY

1992]; Schlechtriem / Schwenzer art. 19 CISG at 8; Magellan International Corporation v.

Salzgitter Handel GMBH, U.S. District Court of Illinois, 99 C 5153 ]

14

3.1.3. Claimant’s inspection of the Flexoprint machine in Athens

55. After Respondent’s offer, Claimant followed its invitation to inspect the machine at

the place of its previous owner in Athens, Greece, and had full opportunity to thoroughly

examine the printing machine and ask its previous owner, who had been using it in the past,

about its performance and its satisfaction with the quality of its printings. Furthermore,

technical data and the operating manual were at hand and accessible upon simple request.

56. Thus, when Claimant inspected the printing machine to be purchased in Athens, it

had ample opportunity to inspect the printing machine thoroughly and to ask for a copy of the

operating manual or its technical specifications. This, however, Claimant did not consider

necessary to do, and preferred spending the time there as a tourist (cf. Claimant’s

Exhibit n° 3).

57. Event though Claimant was materially in a position to know all elements about the

printing machine it was interested in acquiring before signing the contract, and despite the

fact that the machine’s capacity to print on 8 micrometer foil was allegedly so important to

Claimant, it did not bother to enquire further into the matter.

58. Therefore, Respondent cannot be held liable for not having provided Claimant ample

opportunity to thoroughly inspect the machine and enquire about its technical specifications

and past performance, and Respondent cannot be blamed for the fact that Claimant did not

take due advantage of this opportunity.

59. Also, it is to be insisted that Respondent had no positive duty to inform Claimant

about any aspect of the printing machine, and that the specific purpose of Claimant’s visit to

Athens was to be in a position to thoroughly inspect and enquire about the printing machine.

3.1.4. Respondent’s altered offer dated 27 May 2002

60. Later, Respondent added an arbitration clause – on which the present way of dispute

settlement is based – to the contract dated 27 May 2002 (cf. Claimant’s Exhibit n° 7).

61. Adding an arbitration clause to the initial offer dated 25 April 2002 does not fall

under the mere-modification-clause of Art. 29-1 CISG, which would, in that case, not have

constituted a new offer. Instead, it constitutes an altered offer according to Art. 19-1 CISG,

15

Art. 19-2 CISG in conjunction with Art. 19-3 CISG [analogy from Filanto S.p.A. v.

Chileswich International Corp.; Magnus in “Staudinger” art. 19 CISG at 17].

2.1.6. Claimant’s acceptance, conclusion of the contract, effectiveness as of 30 May 2002

62. Given that the terms and conditions of Respondent’s offer were perfectly satisfactory

for Claimant, the latter accepted it without reservation by way of sending back the signed

contract the same day. (cf. Claimant’s Exhibit n° 5)

63. At this point, it is to be noted that Claimant accepted Respondent’s offer at a time –

30 May 2002 – when Claimant had already had ample possibility to take a look at the

Flexometix printing machine and its technical specifications in the maker’s manual, which

was attached to the document Claimant’s Exhibit n° 7 to form an integral part of the contract.

(cf. Respondent’s Exhibit n° 1)

64. Henceforth, the contract concerning the second hand 7 stand Magiprint Flexometix

Mark 8 printing machine $ 42 000 to be shipped, re-erected, and refurbished on Claimant’s

premises [Magnus in “Staudinger" art. 14 CISG at 3] was concluded and effective as of

30 May 2002.

3.2. Regarding an alleged “implicit contractual term”

65. In paragraphs 22 to 33 of its Memorandum, Claimant endeavours to construe what it

refers to as an “implicit term” into the contract, and develops a scholarly argument on what is

to be seen as forming part of the contract, and that “the most important function of

interpretation is to ascertain whether the contract has been properly concluded and what is

its precise content” [Erosi in “International Sales” at chap. 2, p. 15].

66. Whilst all of this may be fine in theory, Respondent does not see the necessity of

such argument being pursued: the contract between the parties dated 30 May 2002

(cf. Claimant’s Exhibit n° 7) makes explicit mention of the performance characteristics of the

second hand Flexometix printing machine in the maker’s manual and which forms an integral

part of the contract. It is clearly and unequivocally specified there:

Substrate Limits of Performance:

Paper (bleached wood pulp) > 40 Grams / square metre

16

Aluminium foil > 10 micrometers

(cf. Respondent’s Exhibit n° 1)

67. Thus, when Claimant signed Respondent’s contract, it knew exactly what it had

bargained for, what it would pay for and what it would get. As can be seen from the maker’s

manual, the Flexometix machine will print on aluminium foil thicker than 10 micrometers,

but it will not do so on thinner supports – id est on 8 micrometer foil, for instance.

68. Furthermore, Claimant had no reason to believe that that particular Flexometix

machine would be different than specified in its maker’s manual, and Respondent never

explicitly ascertained that it be capable of printing on 8 micrometer aluminium foil.

69. Also, as Claimant itself rightly points out at paragraph 23 of its Memorandum, “the

contract concluded May 30, 2002 [Cl. Ex. No. 7] does not contain an explicit term requiring

the Mark 8 to print on 8 mm foil”, it did itself not expect the Flexometix printing machine to

be capable of printing on aluminium foil as this as 8 micrometers.

70. The terms of the contract and technical product specifications have all been drafted

into or attached to the contract – document Claimant’s Exhibit n° 7 – and all parties declared

their full assent to be bound contractually according to the provisions contained therein. For

matters clearly and unequivocally governed by the contract, there is no room for interpretation

according to pre-contractual or post-contractual “conduct” of one or the other party.

71. Therefore, there is no such thing as an “implied contractual term” requiring the

Flexometix machine being capable of printing 8 micrometer foil supports.

3.3. Regarding the criterion of “fitness for a particular purpose”

72. It is true that Art. 35-2-b CISG provides that

the goods do not conform with the contract unless they […] are fit for any

particular purpose expressly or impliedly made known to the seller at the

time of the conclusion of the contract, except where the circumstances show

that a buyer did not rely, or that it was unreasonable for him to rely, on the

seller’s skill and judgement […]

17

73. It is also true that if the buyer informs the seller about any specific purpose for which

the buyer seeks the goods, the seller must deliver goods fit for that purpose. [Sec. Comm.,

Art. 35 at 7], and failure to deliver such conforming goods would render the seller in a

situation of breach of the contract [Manipulados del Papel, at 4].

74. In the present case, however, Claimant did not at any time prior to or at the

conclusion of the contract inform Respondent about the particular purpose of printing on foil

as thin as 8 micrometers as the purpose of the acquisition of the printing machine. Claimant

merely specified:

We are interested in printing coated and uncoated papers for wrapping,

polyester and also metallic foils for use in the confectionary market and

similar fields. Typical plain and coloured aluminium foil for chocolate

wrappers may be of 8 micrometer thickness.

(Claimant’s Exhibit n° 1)

75. As is apparent from the wording of Claimant’s Exhibit n° 1, Claimant did not specify

the exact purpose of the machine as being capable of printing on foil as thin as 8 micrometers.

Instead, Claimant simply wanted to acquire a printing machine being capable of performing

the usual printing needs for use in the confectionary market or similar fields, but he did not

insist on it being capable of printing on foils as thin as 8 micrometers. Had this fact been so

crucially important to Claimant, it would well have insisted on this particular requirement,

and Respondent could have duly taken it into account by providing a different printing

machine at presumably higher cost.

76. When Claimant wrote that “typical plain and coloured aluminum foil for chocolate

wrappers may be of 8 micrometer thickness” (Claimant’s Exhibit n° 1), it did not, at that time,

emphasise the possibility of such foils existing as a necessary prerequisite for the printing

machine’s operating capacities.

77. Furthermore, it is to be recalled that the adverbial expression “may be” refers to the

possibility of some event happening as opposed to it not happening, and does not make any

particular reference to its probability: the event may be very likely, likely, not so likely, not

likely at all, yet possible (cf. Merriam Webster Dictionary, etc.). Had Claimant wished to

emphasise that the Flexometix machine did have to be capable of printing on foil supports of

18

8 micrometers, it would certainly not have omitted – as it has done – to emphasise that need

with an expression commensurate to that effect.

78. Unlike Claimant’s assertion (cf. paragraph 6 of Memorandum for Claimant), that

Respondent “knew [that] the Oceania Confectionaries account required the use of

8 micrometer foil”, Respondent has not been made aware of that fact by Claimant, and

Claimant’s assertion does not follow from any of the documents cited in this context.

Furthermore, the printing machine’s capability of printing on 8 micrometers was not

“Claimant’s sole reason for purchasing the Mark 8” as Claimant wrongfully asserts in

paragraph 6 of its detailed statement of claim.

79. In truth and in fact, Claimant was simply interested in being able to print foils for the

general wrapping market and to be able to serve its contract with Oceania Confectionaries, but

it did not specifically insist that the actual foils to be printed on would be as thin as

8 micrometers, which is apparent from the wording it chose to employ: “may be of

8 micrometers thickness”. (cf. Claimant’s Exhibit n° 1)

80. On the contrary, the printing machine duly supplied by Respondent was absolutely fit

to meet the general printing requirements for the wrapping market as desired by Claimant.

81. When Claimant states: “in a subsequent letter, Claimant reiterated the importance of

the Mark 8’s ability to print on thin foil of the type commonly used in the confectionary

market when it stated, ‚it is only the Oceania Confectionaries account that makes the Mark 8

worthwhile’” (cf. paragraph 6 of Memorandum for Claimant), it does by no means follow

from that assertion that the printing machine had to be capable of printing on foil of

8 micrometer thickness.

82. Furthermore, had the fact that the printing machine be capable of printing on

8 micrometer aluminium foil really been so important to Claimant, it would have stressed this

exigency accordingly and made sure that Respondent knew this fact, and that there would be

no room for misunderstandings or errors on that particular subject.

3.4. Conclusion of the section

83. Whilst it is true that Claimant may not have done all that is advisable when

purchasing sophisticated industrial equipment – such as enquiring thoroughly into its

19

performance characteristics or the product specifications, to name only a few – Respondent

cannot be held liable for such default. Until the moment when Claimant signed the contract, it

was under no obligation to go through with the purchase of the machine, and had it made due

use of the opportunities provided to inspect the machine in Athens, Greece or to consult the

technical specifications in the maker’s manual, it might well have decided that that particular

printing machine was not what it wanted or what it needed. From the moment, however, when

it signed the contract, Claimant legally declared it was perfectly satisfied by the terms and

conditions of that contract.

84. It sure is regrettable for Claimant to be dissatisfied with the Flexometix printing

machine it purchased, and Respondent did everything it could – including having its foreman

Mr. Swain take a look at Claimant’s Flexometix machine ex grata. In order to relieve

Claimant, Respondent even offered to purchase back the machine. (cf. Respondent’s Exhibit

n° 3) In addition to that, however, Respondent could do no more for Claimant.

4. Rejection of alleged damages

85. Claimant asserts that according to the provisions of Art. 74 CISG it be entitled to

claim damages in the amount of $ 3 200 000 from Respondent for breach of contract. In this

section, Respondent will contest and refute Claimant’s allegations in respect of the existence

of such damages, regarding Claimant’s way of arriving at their amount, regarding the

foreseeability of such damages arising, in respect of the striking disproportion between the

extremely high amount of damages claimed and the comparatively small commercial value of

the contract. Insofar as various allegations made by Claimant have already been contested and

/ or rebutted in the previous section, those contestations and / or rebuttals shall not have to be

expressly repeated in this section.

4.1. In respect of their existence, based on objective criteria

4.1.1. Regarding Claimant’s allegation of their existence according to the contract

86. First of all, it is to be recalled that Claimant set out to purchase a second hand

Flexometix printing machine for use in the general wrapping market. The exact wording of its

letter dated 17 April 2001 was:

20

We are interested in printing coated and uncoated papers for wrapping,

polyester and also metallic foils for use in the confectionery market and

similar fields. Typical plain and coloured aluminum foil for chocolate

wrappers may be of 8 micrometer thickness.

(Claimant’s Exhibit n° 1)

87. Whilst Respondent will not repeat at length here what it has already established

above – namely that the printing machine’s capability of printing on 8 micrometer aluminium

foil was neither a fitness-for-a-particular-purpose condition of the product nor an implicit

term of the contract – Respondent does insist on the fact that it delivered a fully operational

Flexometix printing machine as ordered by Claimant and suitable for printing coated and

uncoated papers for wrapping, polyester and also metallic foils for use in the confectionery

market and similar fields, which was demonstrated by various successful test runs.

88. Claimant was therefore effectively in a position to print on those supports and to sell

its products to customers for wrappers in the confectionary market and similar fields –

including Oceania Confectionaries.

89. The fact that Claimant has, for whatever reason, not done so or not been able to do so

– including the fact that it lost its client Oceania Confectionaries – does by no means

constitute the conditio sine qua non for the damages claimed by Claimant in respect of that

particular client account. By way of consequence, Claimant’s assertion regarding the “but-for-

cause” in paragraph 34 of its Memorandum is erroneous, as will be further developed below.

4.1.2 Regarding the comparison of Claimant’s overall economic situation before and

after the conclusion of the Flexometix contract

90. The argument to be made under this heading is quite simple, yet rather strong and

compelling: at the time when the parties contracted for the sale, refurbishment and delivery of

the Flexometix printing machine, Claimant had already – previously – concluded its contract

with Oceania Confectionaries and is therefore no worse off economically speaking after

Respondent’s alleged breach of contract than before the conclusion of that contract.

Therefore, damages have simply not arisen, and Claimant has no claim against Respondent,

irrespective of its allegation of breach of contract being true.

21

91. This reasoning will probably sound unexpected to Claimant, therefore Respondent

will endeavour to make it as clear as possible. Before signing the contract with Respondent

which became effective 30 May 2002 (cf. Claimant’s Exhibit n° 7), Claimant did already have

its contract with Oceania Confectionaries since 10 May 2002 at the very latest (cf. Claimant’s

letter and telefax dated 10 May 2002, Claimant’s Exhibit n° 3), yet Claimant was not

materially in a position to serve that contract for want of an appropriate printing machine –

a Flexometix machine as it happens to be.

92. Comparing the overall situation of Claimant before the conclusion of the contract

concerning the Flexometix printing machine and after the alleged breach of that contract by

Respondent, there is no difference in Claimant’s overall situation: because Claimant was not

capable of printing the 8 micrometer aluminum foil apparently required by its contract with

Oceania Confectionaries when it signed that contract, the fact that it was (still) not able to

print on such foil after the conclusion of the contract with Respondent (and its alleged breach

of that contract) makes no difference whatsoever as concerns Claimant’s ability to serve its

contract with Oceania Confectionaries.

93. A loss to be claimed in damages has therefore not arisen for Claimant. It has merely

not been able to live up to its contractual obligations towards Oceania Confectionaries for

lack of a suitable printing machine, so that it cannot claim lost profits either. Thus, all that is

left over would be the loss of a mere chance to make profit, but which is not recoverable in

damages. [Schlechtriem / Schwenzer, Art. 74 CISG at 22]

4.1.3 Claim for lost profits vs. breach of the bona fides obligation of Art. 7-1 CISG

94. Maybe matters can be further elucidated by framing them in other words. What has

happened is that Claimant, eager to earn what it calls “a long period of handsome profits”

(cf. Claimant’s Exhibit n° 3) – which Respondent will not contest to be a legitimate goal – has

engaged in a contract with Oceania Confectionaries requiring it to print on 8 micrometer

aluminum foil, even though Claimant knew that it could then not print on such thin foil

supports. Because of that, Claimant set out to purchase a printing machine capable of printing

on such supports, and contacted Respondent. Whilst it insisted that it needed the printing

machine to be fully operational by 15 July 2002 (Claimant’s Exhibit n° 3), it did not tell

Respondent all that it needed and exactly what it needed, simply stating that the required

machine should be capable of

22

printing coated and uncoated papers for wrapping, polyester and also

metallic foils for use in the confectionery market and similar fields. Typical

plain and coloured aluminium foil for chocolate wrappers may be of 8

micrometer thickness.

(Claimant’s Exhibit n° 1)

95. Had Claimant needed a Flexometix or other printing machine being capable of

printing on 8 micrometer aluminium foil, it had a positive duty to state that requirement as

clearly as it stated the deadline of 15 July 2002 in its correspondence with Respondent.

Instead, Claimant simply omitted to mention that apparently so crucial little detail, thinking

that either it would get a printing machine enabling it to serve its contract with Oceania

Confectionaries, or it would simply put the blame on the seller. Either way, Claimant would

get the money, be it in profits from Oceania Confectionaries or by way of ‘lost profits’ from

Respondent.

96. Therefore, Claimant cannot be awarded damages for lost profits for breach of

contract without violating the general principles of good faith underlying the spirit of the

UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS and

as expressed in Art. 7-1 CISG.

97. In case the Arbitral Tribunal would not follow the preceeding arguments,

Respondent submits the following.

4.2. In respect of Claimant’s way of calculating such amount of damages

98. Concerning the amount of damages to be awarded, sentence 1 of Art. 74 CISG

provides:

Damages for breach of contract by one party consist of a sum equal to the

loss, including loss of profit, suffered by the other party as a consequence

of the breach.

99. Claimant’s way of calculating the amount of damages it allegedly suffered – i.e. to

say: 8 years time x $ 400 000 lost profit = $ 3 200 000 damages – looks appealing in that it

boasts simplicity and straightforwardness, both in principle and in the ensuing algebra.

Matters, however, are more complicated.

23

4.2.1. Regarding the probability of Claimant’s assumptions being true in general and

regarding the possibility of a second-term renewal of Claimant’s contract

100. Claimant’s calculations are based on a number of assumptions, but which cannot

automatically be said to hold true over a period of 4 years time, yet alone over a period of

8 years reaching into the future. That is the problem of the general foreseeability of events in

excess of a short period of time, and damages – should the Arbitral Tribunal decide to award

such – are to be mitigated in response to this uncertainty.

101. Amongst the matters to be considered are the risk of Oceania Confectionaries’

inability to pay Claimant its bills (in case of bankruptcy, for instance), or simply the risk of

the Flexometix printing machine breaking down and being irreparable (it has to be borne in

mind that Claimant purchased a second-hand printing machine that had already served it’s

previous owners). All these factors must enter into the eventual calculation of damages,

should the Arbitral Tribunal decide to award such – and mitigate them.

102. The CISG does not directly govern the degree of certainty required in order to assess

the amount of hypothetical damages for lost profits or the point in time relevant in their

determination. In the absence of such rule, one has to resort to considering that only such

damages may be awarded that correspond to profits which would have been earned for sure

under the normal course of things [Schlechtriem / Schwenzer, Art. 74-22], and the burden of

proof is incumbent on Claimant.

103. Whilst Claimant has undertaken to make every effort in order to convince of the

likelihood of a second term renewal of its contract with Oceania Confectionaries, Respondent

submits that this event occurring is much less likely than suggested by Claimant.

104. In addition to the general problems associated with probabilities in the future already

discussed, the entry of Reliable Printers as a new actor – direct competitor – on Oceania’s

small printing market is not to be underestimated in its negative effects on the likelihood of

Claimant’s contract with Oceania Confectionaries being renewed. In particular, the

emergence of Oceanic Generics as a new client for blister foil of the sort also required by

Oceania Confectionaries would potentially allow Reliable Printer’s to drive Claimant

completely out of the market, and, in any event, adds to the uncertainty of Claimant’s contract

with Oceania Confectionaries actually being renewed for a second term.

24

105. Respondent submits that Claimant has not been able to establish that it would have

been able to renew its contract with Oceania Confectionaries with the required degree of

probability in order for it to be awarded $ 1 600 000 in additional damages.

106. Therefore, Respondent request the Arbitral Tribunal not to award Claimant the

$ 1 600 000 in additional damages for a second-term renewal of its contract with Oceania

Confectionaries at all, or, at least, to mitigate that amount according to the probability of it

occurring.

4.3. In respect of their foreseeability according to Art. 74 CISG

107. In what’s more, Claimant presses for its damages on the basis of their foreseeability

according to Art. 74 sentence 2 CISG which provides:

Such damages may not exceed the loss which the party in breach foresaw

or ought to have foreseen at the time of the conclusion of the contract, in

the light of the facts and matters of which he then knew or ought to have

known, as a possible consequence of the breach of contract.

108. Furthermore, we learn from Claimant that the foreseeability limitation is, according

to Schlechtriem [Schlechtriem in “Uniform Sales Law”] based on the English case of Hadley

v. Baxendale of 1854, which indeed establishes a test of remoteness in the context of the

foreseeability of damages.

4.3.1. The case of Hadley v. Baxendale and Art. 74 CISG

109. In Hadley v. Baxendale, P’s mill in Gloucester was brought to a standstill by a

broken crankshaft. P engaged a carrier, D, to take the crankshaft to London where it was to be

used as a pattern for a new one. D, in breach of contract, delayed delivery for five days, but

unknown to D, P only had one crankshaft so that the mill was out of action for longer than it

needed to be. P then claimed damages for loss of profit caused by this delay. It was held that

P could not recover such loss, because it could not fairly and reasonably be considered to

arise naturally from the breach. [cf. Hadley v. Baxendale].

110. The key principle in Hadley v. Baxendale is that damages are recoverable for loss or

damage which arise naturally from the breach in the ordinary cause of things, or, which were

in contemplation of the parties at the time they entered into contract.

25

111. In the present case, and as has already been established supra, Respondent could not

fairly and reasonably consider that its delivery of the ordered Flexometix printing machine for

use in the market for confectionary wrappers and similar fields would lead to a claim of

$ 3 200 000 in damages as a foreseeable consequence simply because it was not capable of

printing on 8 micrometer aluminium foil which is not an industry standard.

4.3.2. The case of Victoria Laundry Ltd. v. Newman Industries Ltd. and Art. 74 CISG

112. It is true that in Hadley v. Baxendale, if P had told D at the time of entering into the

contract that it was the mill’s only crankshaft, P could have recovered under the second limb

of the principle. This principle has been further concretized in the 1949 case of Victoria

Laundry (Windsor) Ltd. v. Newman Industries Ltd. which goes hand in hand with Hadley v.

Baxendale: the test of remoteness is whether the loss is reasonably foreseeable as liable to

result from the breach, bearing in mind the knowledge, imputed or actual, of the party in

breach. This principle is consistent with the CISG in which it was transposed.

113. In Victoria Laundry v. Newman Industries, D sold a large boiler to P who were

launderers and dyers. D knew that P wanted the boiler for immediate use in their business, but

the boiler was delivered five months late. P then sued D for the loss of profits during that

period. The Court of Appeals held that P could recover for loss of profits on the ordinary

boiler laundry business, but that they could not recover damages for the loss of profits that

they would have made on lucrative dyeing contracts, because D did not know of these

contracts at the time they entered into the contract with P.

114. In the present case, and as has already been established supra, Claimant did

specifically mention that it needed the printing machine to be delivered and installed on its

premises by 15 July 2002 in order to serve its printing contract with Oceania Confectionaries

(cf. Claimant’s Exhibit n° 3). Respondent installed the Flexometix machine in June, and the

test runs showed that the machine was working properly by 1 July 2002 (cf. Claimant’s

Exhibit n° 8). Thus, Respondent was not in breach.

115. Similarly, Claimant had, at no point in time leading to the conclusion of the contract,

specifically and explicitly mentioned the fact that the printing machine be capable of printing

on 8 micrometer foil if Claimant were not to loose the Oceania Confectionaries account. All

26

Claimant ordered was a second hand Flexometix printing machine for use in the market for

confectionary wrappers and similar fields, and this is exactly what it got.

116. Because Claimant did not specifically tell Respondent that the Flexometix be capable

of printing on 8 micrometer foil supports, and because Respondent could not know of this

particular requirement relating to Claimant’s contract with Oceania Confectionaries,

Claimant’s loss was not reasonably foreseeable as liable to result from the machine not being

capable of printing on 8 micrometer foil supports, and Claimant’s claim does not pass the test

of remoteness as established in Victoria Laundry v. Newman Industries in conjunction with

Hadley v. Baxendale.

117. Therefore, Claimant’s loss was not reasonably foreseeable to result from Respondent

delivering a printing machine not capable of printing on 8 micrometer supports.

4.3.3. Subjective test of Art. 8-1 CISG and objective test of Arts. 8-2, 8-3 CISG

118. Concerning foreseeability under the CISG, exactly the same argument can be

employed to match the subjective and objective tests of Art. 8-1 CISG and Art. 8-2 CISG in

conjunction with Art. 8-3 CISG, respectively: neither Respondent itself nor a reasonable party

in similar circumstances knew or could not have been unaware that Respondent’s delivery of

a printing machine perfectly suited for use in the market for confectionary wrappers and

similar fields – and fully operational – would not satisfy the particular terms of a contract only

known to Claimant and Oceania Confectionaries.

4.4. In respect of the striking disproportion between the excessive amount

of damages claimed by Claimant and the comparatively small value of the

contract to Respondent

119. The purpose of the rule of law in sentence 2 of Art. 74 CISG is to limit the liability

of the party in breach to cover only such risks it can foresee and thus base its calculations

underlying the contract on, and against which it can eventually take out adequate insurance.

[Magnus in “Staudinger” Art. 74 CISG at 13; Soergel 74-13; Karollus in “UN-Kaufrecht”

at 207]

120. This rule is necessary as a normative corrective to the wide-ranging compensation-

obligation incumbent on the party in breach, and in order not to hinder the development and

27

smooth functioning of international trade, as expressly defined as one of the objectives of the

CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.

4.4.1. Limitation of Respondent’s liability according to Art. 9-2 CISG: standard usages

in the trade of second hand industrial equipment

121. In that context, it is to be pointed to the standard usages in the trade of second hand

industrial equipment which limit the liability of the seller to the nominal value of the contract,

and do therefore not need to be included in the wording of the contract in order to be

applicable.

122. This principle is also well known to the CISG, which stipulates in its Art. 9-2:

The parties are considered, unless otherwise agreed, to have impliedly

made applicable to their contract or its formation a usage of which the

parties knew or ought to have known and which in international trade is

widely known to, and regularly observed by, parties to contracts of the type

involved in the particular trade concerned.

123. In particular, no seller will accept potential liability in the amount of several million

dollars – $ 3 200 000 as it happens to be in the present case – for a transaction with a nominal

value of as little as $ 42 500 including disassembly, shipping, refurbishment and re-assembly

of some second hand Flexometix printing machine.

124. As is readily obvious from the striking disproportion between Respondent’s profits

of a couple of thousand dollars and Claimant’s $ 3 200 000 claim for damages, no reasonable

seller would ever consent to such a transaction unless liability were to be limited.

4.4.2. Lack of foreseeability of damages in excess of sane proportion

125. Furthermore, given the extreme disparity between the net value of the transaction and

the amount of damages potentially arising, such damages are to be considered as no longer

foreseeable once they exceed the boundaries of a sane relation between risk and profit, which

is clearly the case here.

126. Therefore, the party relying on the breach of contract is under the obligation to

inform the other party about the risk of particularly high damages. [Magnus in “Staudinger”,

28

77-1; Piltz “Internationales Kaufrecht” § 5 at 462; Stoll / Gruber in “Schlechtriem” 77-7.]

If it has not done so – which is the case at present here – that party is barred from claiming

damages already for lack of their foreseeability. [Magnus in “Staudinger” Art. 77 CISG

at 17]

4.5. Regarding Claimant’s obligation to mitigate damages, Art. 77 CISG

4.5.1. In respect of Claimant’s obligation to mitigate damages in accordance with

sentence 1 of Art. 77 CISG

127. Concerning Claimant’s obligation to mitigate its loss, sentence 1 of Art. 77 CISG

provides:

A party who relies on a breach of contract must take such measures as are

reasonable in the circumstances to mitigate the loss, including loss of

profit, resulting from the breach.

128. The obligation to minimise damages contained in sentence 1 of Art. 77 CISG results

from the concretisation of the general bona fides obligation of Art. 7-1 CISG in international

trade [Magnus in “Staudinger” Art. 77 CISG at 1 and at 2; Schlechtriem / Schwenzer 77-1].

The basic principle underlying the provision of Art. 77 CISG is that so-called ‘avoidable loss’

cannot and is not to be compensated. [Stoll “Schadensersatzpflicht” p. 268; Piltz

“Internationales Kaufrecht” § 5 Rn. 459]

129. Concerning the burden of proof, the party relying on the protection from the

provision in Art. 77 CISG must establish that the other party has not taken all reasonable

measures to mitigate its loss including its loss of profit. In this sub-section, Respondent will

show that Claimant has failed to satisfy its mitigation-obligation and is therefore barred from

claiming damages. [Magnus in “Staudinger” Art. 77 CISG at 22¸Schlechtriem / Schwenzer

77-12; AG München, 23.06.1995]

130. In paragraph 50 of its Memorandum, Claimant boldly asserts that it “made every

effort to make the Mark 8 capable of printing on 8 mm foil”. This, however, is not the case. In

its letter and telefax dated 1 August 2002 (cf. Claimant’s Exhibit n° 9), Claimant writes: “My

fear is that they [Reliable Printers] will soon be fully occupied while we sit with an idle

machine. If your personnel [Respondent’s] are not able to bring the machine into full

29

operation soon, we will expect you to cover all of our expenses and losses”. This is clearly not

an attitude aimed at mitigating losses; rather, Claimant contents itself to “sit with an idle

machine” waiting for matters to be solved somehow, by somebody, but without any kind of

action on its own part.

131. Furthermore, Claimant asserts it could do no more to mitigate damages than to allow

Respondent’s personnel on its premises so they could try to make adjustments to the

Flexometix machine to print on supports it was not designed for and is not capable of, as can

clearly be seen from the “Substrate Limits of Performance” section of the operating manual

(cf. Respondent’s Exhibit n° 1).

132. Also, it is not true that Respondent’s agent, Mr. Swain, had at any time declared that

the machine could be trimmed to print on 8 micrometer foil – on the contrary, he was always

very weary of such undertaking being successful (cf. Respondent’s Exhibits n° 1, n° 2, n° 3).

Thus, Claimant cannot rely – as it does in paragraph 49 of its Memorandum – on the prospect

of the machine being able to print on 8 micrometer foil anytime soon or at all to excuse it for

not having purchased a different printing machine in the mean time.

133. The remainder of Claimant’s assertions on page 19 – paragraphs 49 to 52 –

concerning the difficulties of purchasing a different printing machine (nota bene: Reliable

Printers managed to do so in a very short time) or the allegedly tiny chance of it being

awarded the contract with Oceania Confectionaries when competing against Reliable Printers

(nota bene: Claimant had already been awarded the contract with Oceania Confectionaries,

and there was no other contract to be awarded) or the risk of buying a different printing

machine and associated cost (nota bene: the prospect of a contract yielding up to $ 3 200 000

in profits over 8 years’ time does justify investing some $ 50 000 for the necessary

equipment) or concerning the tight time frames etc. are to be disregarded as unsubstantiated

altogether.

134. Rather, the party relying on the breach of contract must take all adequate measures as

can reasonably be expected in order to prevent or mitigate the damages arising, and the

standard against which to assess those actions is that of a reasonable party in the same

situation, as prescribed by Art. 8-2 CISG [Magnus in “Staudinger”, 77-10; Schlechtriem /

Schwenzer 77 CISG at 7; Bianca / Bonell Art. 77 CISG at 2.3; R. Motor s.n.c. v. M. Auto

30

Vertriebs GmbH, Oberlandesgericht München, 7 U 1720/94 dated 08.02.1995 in CLOUT

Abstract n° 133].

135. As a matter of fact, Claimant failed to enter into renegotiations with Oceania

Confectionaries concerning some additional delay, the delivery of substitute products (i.e. foil

wrappers of 10 micrometers thickness) until a different printing machine could be acquired.

Claimant did not purchase 8 micrometer wrappers from some supplier abroad in order to fulfil

its contractual obligations towards Oceania Confectionaries, it did not sub-contract the

production of the wrappers for some time to Reliable printers once they had purchased their

printing machine even though Oceania Confectionaries had not yet cancelled their contract

with Claimant at that time. Actually, Claimant was not only unsuccessful in mitigating its

damages, it did not even bother to try to do so. Instead, Claimant was sitting around “with an

idle machine” expecting Respondent to cover its lost profits.

136. Therefore, Claimant cannot rely on the alleged breach of contract for its own lack of

initiative in mitigating damages.

4.5.2. In respect of Respondent’s prerogative to reduce damage claim in accordance with

sentence 2 of Art. 77 CISG

137. Furthermore, Respondent is entitled to claim a reduction in damages according to the

provision of sentence 2 of Art. 77 CISG:

If he [the party relying on the breach of contract] fails to take such

measures, the party in breach may claim a reduction in the damages in the

amount by which the loss should have been mitigated.

138. The damages that can be claimed for loss including lost profit resulting from breach

of contract are to be reduced by the amount of loss avoidable by virtue of the undertaking of

adequate measures. [Magnus in “Staudinger”, 77-19;; Schlechtriem / Schwenzer 77-12;

Karallus in „UN-Kaufrecht“ at 225]

139. As Claimant’s lack of initiative to mitigate the avoidable loss was conditio sine qua

non for the damages arising in the first place, and as such high amounts of damages would not

have arisen had Claimant taken the necessary and circumstantially reasonable steps to

effectively avoid them, Respondent claims a commensurate reduction in these damages.

31

140. Respondent thus requests the reduction of the $ 3 200 000 in damages claimed by

Claimant by the amount of $ 3 100 000, corresponding to three month’s profits based on an

assumed $ 400 000 annual profits (justification below).

141. In due consideration of the circumstances underlying Claimant’s situation as set out

above and in the preceding subsection, and in case the Arbitral Tribunal would conclude as to

Respondent’s liability to pay damages to Claimant for breach of contract, it seems reasonable

and acceptable for Respondent to grant Claimant the equivalent compensation of lost profits

for a period of 3 months’ time – that is the amount of $ 100 000 – corresponding to the

maximum time necessary to find and purchase a different printing machine in order for

Claimant to be in a position to fulfil its contract with Oceania Confectionaries.

142. In sum, and taking into account the compensation for lost profits offered by

Respondent under the above conditions, Claimant would have suffered no loss – including

lost profits – but for the avoidable loss due to its own failure to mitigate its own damages.

143. This outcome seems fair and viable, for it is acceptable to both Claimant and

Respondent and adequately reflects the parties’ own respective responsibilities in the situation

that has arisen. Therefore, Respondent requests the Arbitral Tribunal to follow its offer for a

reduction.

4.6. Conclusion of the section

144. For the reasons set out above, Respondent requests the Arbitral Tribunal to find that

damages as claimed by Claimant have not arisen at all. In case the Arbitral Tribunal finds that

damages had arisen, Respondent request the Arbitral Tribunal to find that they would not

amount to $ 3 200 000 as suggested by Claimant but only to a lower amount as established by

Respondent. Also, Respondent requests the Arbitral Tribunal to find that the maximum

amount of liability be limited to the value of the contract as is a usage of which the parties

knew or ought to have known and which is widely known and regularly observed in the

industry. Furthermore, Respondent requests the Arbitral Tribunal to find that Claimant did not

mitigate its own loss and can therefore not rely on it. In case the Arbitral Tribunal does not

conclude as to Respondent’s preceding arguments, it request the Arbitral Tribunal to find that

Respondent is entitled to reduce the amount of damages claimed by Claimant and to follow

Respondent’s fair and equitable proposition of a reduction in damages to $ 100 000. Finally,

32

Respondent requests the Arbitral Tribunal to find that Claimant has violated its bona fides

obligations towards Respondent and is therefore barred from recovery of damages altogether.

5. Exemption of liability

5.1. According to Art. 80 CISG

145. In the event the Arbitral Tribunal should conclude as to Respondent’s liability for a

breach of contract, Respondents submits it is exempted from that liability in accordance with

the provisions of Art. 80 CISG, which stipulates:

A party may not rely on a failure of the other party to perform, to the extent

that such failure was caused by the first party's act or omission.

5.1.1. The concretization of the general bona fides principle of Art. 7-1 CISG

146. The ratio legis of Art. 80 CISG is to prevent any party from deriving rights from the

other party’s breach of contract if it is itself causally responsible for that other party’s failure

to perform. [Magnus in “Staudinger” Art. 80 CISG at 1 and at 5]. Thus, Art. 80 CISG

concretises the general principle of good faith as provisio specialis to Art. 7-1 CISG. [Magnus

in “Staudinger”Art. 80 CISG at 2 and at 3; Schlechtriem / Schwenzer Art. 80 at 1].

147. In particular, Art. 80 CISG prevents a party to obtain undue benefit from its own

venire contra factum proprium by protecting the other party’s reliance interest in the first

party’s actions and affirmations, should it later decide to go against them.

5.1.2. Applicability requirements of Art. 80 CISG

148. Thus, the requirement for an exemption of liability in accordance with the provision

of Art. 80 CISG is that the party relying on the breach of contract is causally responsible for

the party in breach not having been able to perform as required [Magnus in “Staudinger”

Art. 80 CISG at 8], and any act or omission of the party relying on the breach of contract can

satisfy that condition. [Magnus in “Staudinger” Art. 80 CISG at 9; Bianca / Bonell Art. 80

at 2.3]

149. Specifically, omissions to cooperate when the party relying on the breach of contract

was under an obligation to cooperate according to the contract, or according to usages in

33

international trade or simply in response to general considerations of good faith are to be

considered to fulfil the prerequisites of Art. 80 CISG. [Magnus in “Staudinger” Art. 80 CISG

at 10]

150. Furthermore, it is not required that the party in breach be at fault [Magnus in

“Staudinger” Art. 80 CISG at 11; Mankowski in “MünchKommHGB” art. 80 at.9; Stoll /

Gruber in “Schlechtriem” Art. 80 at 3] and the standard of causality is that the act or

omission of the party relying on the breach of contract must have been the cause of the failure

to perform of the party in breach. [Magnus in “Staudinger” Art. 80 CISG at 12; Schlechtriem

/ Schwenzer Art. 80 at 4]

151. In particular, it is to be pointed to the fact that buyer’s omission to inform seller

about the relevant product specifications fully satisfies the above prerequisites, and that these

applications of Art. 80 CISG have been confirmed in relevant case law as well as in the

scholarly writing on that issue. [Schlechtriem / Schwenzer Art. 80 at 3; Stoll

“Schadensersatzpflicht” p. 280]

152. As has already been established at length in the previous sections, Claimant’s failure

to inform Respondent that it did specifically require a printing machine capable of printing on

8 micrometer aluminium foil rather than a “second hand Flexometix printing machine for use

in the market for confectionary wrappers and similar fields” in order to fulfil its contract with

Oceania Confectionaries satisfies all of the above requirements so that Art. 80 CISG is

applicable: Claimant was under a positive obligation to inform Respondent about the exact

specifications of the product which it needed; Claimant’s failure to do so resulted in the

printing machine delivered by Respondent not being able to print what Oceania

Confectionaries needed or wanted; Claimant’s omission to inform Respondent is the

“but-for-cause” of that outcome. Thus, if Respondent is in breach of contract, it is because

Claimant failed to duly inform it fully and correctly about the relevant product specifications.

5.1.3. In respect of the splitting of damages according to Art. 80 CISG

153. Art. 80 CISG calls for a splitting of the damages between the party relying on the

breach of contract and the party which failed to perform according to their relative degrees of

responsibility. [Magnus in “Staudinger” Art. 80 CISG at 15; Bianca / Bonell art. 80 at 2.5]

34

154. In so far as Claimant’s order of a second hand Flexometix printing machine capable

of “printing coated and uncoated papers for wrapping, polyester and also metallic foils for

use in the confectionery market and similar fields” (Claimant’s Exhibit n° 1) is concerned,

Respondent delivered a product performing to specifications, and damages did not arise.

155. In so far as the machine had to be specifically capable of printing on 8 micrometer

aluminium foil, Claimant is 100 % at fault in accordance with Art. 80 CISG as established

above, so that the part of the damages having arisen is to be imputed 100 % on Claimant and

0 % on Respondent.

156. Therefore, Respondent’s liability to pay for damages amounts to $ 0 (zero dollars).

5.2. Conclusion of the section

157. In case the Arbitral Tribunal had concluded as to a liability to pay damages to

Claimant incumbent on Respondent despite the arguments made in the preceding sections,

Respondent is fully exempt from any such liability to pay compensation according to the

provisions of Art. 80 CISG as established in this section, and Respondent request the Arbitral

Tribunal to find accordingly.

IV. Factual and legal conclusions and request for relief

1. Requests to find

158. Respondent requests the Arbitral Tribunal to find that it has jurisdiction to consider

the present dispute according to the CHICAGO INTERNATIONAL DISPUTE RESOLUTION

ASSOCIATION Rules in the version revised and effective as of 1 July 2005.

159. On the substance of the present matter, Respondent requests the Arbitral Tribunal to

find that –

first, under the applicable law, Claimant is precluded with its claim which is

therefore inactionable;

second, in case the Arbitral Tribunal finds that the claim is not prescribed,

Respondent is not in breach of contract by not having delivered a Flexoprint

machine capable of printing on 8 micrometer foil;

35

third, in case the Arbitral Tribunal finds that Respondent was under an

obligation to deliver a Flexoprint machine capable of printing on 8 micrometer

foil, Claimant has not suffered any recoverable damages;

fourth, in case the Arbitral Tribunal finds that damages had arisen,

- they would not amount to $ 3 200 000 as suggested by Claimant but

only to a lower amount;

- the maximum amount of liability is limited to the value of the

contract as is a usage of which the parties knew or ought to have

known and which is widely known and regularly observed in the

industry;

- Claimant did not mitigate its own loss and can therefore not rely on

that loss including lost profit to be recoverable;

- it is entitled to reduce the amount of damages claimed to the fair and

reasonable amount of $ 100 000;

- Claimant has violated its general bona fides obligations established

by Art. 7-1 CISG towards Respondent and is therefore barred from

recovery of damages altogether;

- Respondent is exempt of liability for Claimant’s violations of good

faith owed to Respondent (Art. 80 exemption in the CISG)

fifth, Claimant’s present claim is to be dismissed in its entirety for the reasons

set out above.

2. Requests to order

160. Respondent requests the Arbitral Tribunal to order Claimant to pay all costs of the

arbitration, including the costs of legal representation incurred by Respondent.

36

3. No concessions clause

161. Unless Respondent has explicitly acknowledged any fact or argument mentioned by

Claimant, it is to be considered as contested and rejected by Respondent.

4. Reservation of rights

162. Mc Hinery Equipment Supplies Pty. hereby reserves the right to amend, supplement

and augment the claims stated herein, and to submit such further pleadings, arguments,

exhibits and evidentiary materials as may be appropriate or required in connection therewith.

5. Conclusion

163. In light of all of the above and according to the legal arguments and case law cited,

Claimant’s claim against Respondent is entirely unjustified in all regards, and none of the

substantial prerequisites to order Respondent as requested by Claimant is objectively satisfied.

Respectfully submitted,

on behalf of Respondent:

Mc Hinery Equipment Suppliers Pty.

Team Tübingen 2006

Tübingen, 25 January 2006

J.-C. Barth-Coullaré Cornelia Schmitt Constantin Storz

(Barth-Coullaré) (Cornelia Schmitt) (Constantin Storz)